General Motors and Chrysler worked up to the last minute Tuesday to produce the interim restructuring plans that they owed the Treasury Department in return for the next installment of the $17.4 billion rescue loan the Bush administration promised in December. Yet, as the companies laid out their documents, the United Auto Workers stole the show, announcing tentative labor-cost-cutting agreements with all three U.S. automakers, including Ford, which so far has not taken aid from Washington. The precise impact of the reported deal was not immediately clear; it does not yet address the government's requirement that the union accept company stock instead of cash for a retiree health fund. But the logjam among the auto companies, their union and their creditors may be beginning to give way.
If so, some credit may be due the Obama administration. In particular, President Obama's senior adviser, David Axelrod, pointedly refused to rule out letting the companies go bankrupt if they can't reach a deal that ensures their future viability at a reasonable cost to taxpayers. For the companies, union and bondholders, that is the sort of prospect that concentrates the mind. And, after failing to find a "car czar" acceptable to all sides, the president decided to leave ultimate authority over the negotiations with Treasury Secretary Timothy Geithner and National Economic Council chief Lawrence Summers.
Since GM and Chrysler received the first installments of their loans, market conditions have gone from bad to worse. At an annual rate of 9.6 million vehicles, January's auto sales were running about 300,000 behind the worst-case scenario GM described in a submission to Congress 10 weeks ago. Global demand for cars is so weak that even well-run companies such as Toyota are taking losses. Not surprisingly, GM's and Chrysler's interim restructuring plans this week called not only for deep cuts in fixed costs and employment, but also for more government cash. Chrysler asked for $5 billion — $2 billion more than planned; GM said that, on top of $2 billion for March and the $13.4 billion it has already received, it needs $2.6 billion in April and a replacement for a $4.5 billion line of credit that expires in 2011. It also said it could need $7.5 billion more if the U.S. downturn drags on. GM will shed 47,000 jobs worldwide this year, close 14 U.S. plants over the next three years, and get rid of four of its eight brands. This comes on top of announced cuts in jobs and pay for GM's white-collar work force. But GM still needs a final deal with the UAW and, crucially, its bondholders, to whom it owes some $27.5 billion in unsecured debt.
We hope the Obama administration will scrub the companies' submissions and continue to pressure all parties to make sacrifices. Bankruptcy has to remain an option, lest the negotiations become a farce. The outright collapse of GM and Chrysler might be one more shock than the U.S. economy can absorb. But we can think of something even worse: propping them up through an endless series of bailouts, with no prospect of long-term viability.